Heard At NAFEM Show: It's Ugly Out There, But Show Boosted Mood
The NAFEM Show, just concluded in Orlando, showed just how vital the foodservice equipment and supplies industry is, even in the worst of times. Compared to the general economy, industry business in fact appeared relatively buoyant.

Nearly everyone we spoke with at the showmanufacturers, dealers, consultants, operators, even service agentshad little doubt this is the most challenging environment the market has experienced since the market collapsed by an estimated 25% in the 1980-'82 inflation recessions. Some aren't sure this downturn won't be worse.

January was particularly difficult for most in the industry: Many told us they were off 10 to 20 points for the month compared to year-earlier levels. Several service agents, who usually prosper in a slow market as operators repair rather than buy new, said conditions were so precarious that they felt they had to demand payment at time of service. And everyone said they were unsure just how long this climate will last. "Hunkering down" was another commonly heard phrase.

Despite the trepidation, the mood after three days of walking the aisles was surprisingly upbeat. Attendance was better than most expected. The common refrain was "foot traffic is down but quality is high." It appeared many dealers and distributors had cut back on the number of staff they brought.

Deirdre Flynn, executive v.p. at the North American Association of Food Equipment Manufacturers, told us at the start of the show NAFEM expected overall attendance to be off a few points, but that pre-registrations for operators were up 19% from '07. We saw folks from most of the big chains, as well as many noncommercial foodservice directors, at the show, in addition to consultants, international visitors, reps and dealers.

The level of attendance cheered up nearly everyone. While we expect the first quarter '09 will continue to be one of the worst we've seen for this market, we left the show with a sense that things will start to rebound, if not next quarter, at least by year's end.

More Good News: Materials Prices Continue SlideOne tidbit we heard at The NAFEM Show was that prices of many materials commonly used in foodservice equipment and supplies continue to decline at sometimes breathtaking rates. One manufacturer friend told us his company's cost for 304 stainless was back to where it was in early 2004.

We found that amazing, so we checked in with our friend Tom Stundza, executive editor at Purchasing magazine, to get the update. Stundza, who oversees the magazine's transaction-price data and forecasts and writes the monthly "Steel Flash Report," confirmed our manufacturing friend's information and noted he just wrote a feature on trends in stainless pricing for the magazine's March issue. (The article will be available next month at www.purchasing.com.)

Stundza checked the monthly transaction price data and told us the average price for 304 stainless sheet was $1.28 a pound in January, including nickel surcharge, or $2,560 a ton. That compares with $4,280 a ton last July and $5,830 a ton at the cyclical peak hit of July '06. That's a 56% decline.

Other key materials, such a carbon steels, aluminum and copper are seeing similar deflation, as the severe downturn has dramatically cut demand.

MAFSI Barometer Sags To Record Low; It Could Have Been WorseThe Business Barometer fielded quarterly by the Manufacturers' Agents Association for the Foodservice Industry fell to a record low for fourth- quarter 2008, with overall sales for like lines down 4.7% from year-earlier levels. And the reps forecast that first-quarter '09 will be even worse, predicting sales will be off 7.3%. (All numbers are in current dollars, which means real sales could be even lower in percentage terms.)

Interestingly, the reps' forecast for the fourth quarter turned out to be right on target.

Looking further ahead, reps expect things to get even tougher in the first half of the year. Answering ancillary questions, 59% of those reporting said they are seeing fewer consultant projects and 65% said they are quoting fewer jobs than during the third quarter '08

Equipment and furnishings took the biggest hits in the current survey, with sales down 5.3% and 4.7% respectively. As often happen in severe E&S market downturns, supplies and tabletop did a bit better, off 2.1% and 2.4% respectively.

As for regional results, overall sales were off nearly 7% in the West and 6.4% in the South. Those regions have been most affected by the housing crisis.

Sales in the Northeast fell 5.1% and those in the Midwest 4.7%. Which raises the question: When was the last time we saw the Midwest outperform the rest of the country?

There was a bright spot: Canada, which eked out a 1.6% overall gain, saw all product categories score positive sales comps.

For the year as a whole, the reps surveyed expect sales to decline 5.5%, which rep Michael Posternak said in his commentary "could be indicative of a modest recovery in the second half."

NRA Performance Index Falls In December To New LowThe National Restaurant Association's Restaurant Performance Index, based on a wide-ranging monthly survey of operators, hit a new record low at the end of 2008. In December the overall Index fell to 96.4, off 0.2 point from November. Scores above 100 indicate expansion; below 100 indicate contraction

The December results marked the 14th consecutive month of foodservice-industry contraction. Five of the eight components in the Index were lower. Only the two labor components, one in the Current Situation matrix, the other in the Expectations Index, and the outlook for general economic conditions in six months, rose. The Current Situation Index fell half a point to a new record low of 95.7. The Expectations Index nosed up 0.1 point.

Both capital expenditure components set or matched record lows. The marker for a capital expenditure during the past three months fell a full point, that for expenditures during the next six months was off half a point. Only 34% of operators reported cap-ex spending in the past three months and only 37% expect to make such purchases in the next six months. These numbers reached cyclical highs in the mid 60%-range in the first half of '06.

Technomic Re-Forecasts Tough(er) Year For Operators
One last bit of gloom before we wander out into traffic and enjoy a spring-weather teaser of a 60°F. day in Chicago:

Our friends at Technomic Inc. have shared their revised forecast of operator sales for 2009. We don't know how to characterize it other than ghastly. Back in September, Technomic predicted two years of record contractions in operator sales, or at least records since the firm started forecasting the foodservice market in the early 1970s. Those original forecasts were bad enough: sales off 2.9% real in '08, down 2.7% real in '09. Menu inflation was estimated at 4.2% for '08 and 4.5% in '09.

As we know, the market and commodities prices have deteriorated rapidly since those early forecasts came out. The new projection and forecast is that real sales fell 4.1% in '08 and will fall a further 4.6% real this year. The inflation number for '08, close to actual, is a larger 4.5%, but with rapidly falling food prices, the firm estimates '09 inflation at a much more moderate 2.5%. That means nominal sales are expected to decline 2.2% during '09.

The biggest engine of the negative trend is the full-service restaurant segment, which accounts for nearly 30% of the total market. Technomic expects current-dollar sales to decline 6% and real sales to be off an incredible 8.3% in '09. Travel and leisure segments and business and industry are also forecast to be down more than 7% in real terms. The firm even predicts limited-service restaurants will be off 2.4% in real dollars, with nominal sales expected to be flat. That in spite of the strong performances several of the large quick-service chains continue to post. For example, McDonald's last week reported same-store U.S. sales rose 5.4% in January. Worldwide, comparative sales were up 7.1%.

Information on Technomic products is available at www.technomic.com or by calling 312/876-0004.